Monday Night Finance- Volume 100

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We’re All Millionaires! (on average)

Remember that show, “Who Wants to Be a Millionaire?” It was revolutionary when it came out for giving away such a generous prize package. Becoming a millionaire… what a thrilling proposition. But is being a millionaire still part of an exclusive club? The landscape of wealth has changed quite a bit since then. A recent article on Early Retirement now, that sheds light on this very question, diving into the latest findings from the Survey of Consumer Finances. It turns out, the average American household’s net worth has just surpassed a million dollars for the first time. However, the picture is quite a bit more complex than you might imagine.

Quite amazingly, in 2022, for the first time in history, the average household net worth crossed one million dollars, now standing at about $1,060,000. Of course, wealth is unequally distributed, so while we may all be millionaires on average, the number of millionaire households is much smaller.

~”Big ERN”, Early Retirement Now

This article by “Big ERN” of Early Retirement Now points out that for the first time ever, the average net worth in American households has crossed the million-dollar mark, landing at around $1,060,000. But, and it’s a big but, this wealth isn’t evenly spread out. The reality is, while on paper we’re all millionaires on average, the actual number of households with that kind of wealth is much smaller. (Remember the difference between mean and median from high school math class??) The article dives into how this wealth is distributed and, unsurprisingly, there’s quite a gap. The median net worth is way lower than the average, and the inequality in wealth distribution is pretty stark in the US. Homeownership turns out to be a common factor among millionaires, which kind of challenges the idea that buying a home isn’t a good investment. Big ERN also looks at how wealth grows with age, showing that older households generally have more wealth. And while it’s easy to think the increase in average net worth is just due to inflation, the article points out that there’s actual growth even after adjusting for inflation. The article is a pretty comprehensive look at wealth distribution in the US, digging into some nuances that you don’t often think about and is definitely worth the read.

How to Buy a House in Today’s Market

The last article we looked at highlighted how important home ownership is in wealthy families. That’s great if you own your home now. But what if you’re a current renter? Buying your first home is always tricky, but is especially tough with today’s real estate market. In a recent article on A Wealth of Common Sense, this conundrum is explored in depth, particularly focusing on the challenges and opportunities for first-time buyers in the current climate.

Everyone knows this is one of the most challenging markets ever for those trying to buy their first home. It seems like everyone is priced out of the market right now but more than one-third of all buyers over the past year were first-time homebuyers.

~Ben Carlson, A Wealth of Common Sense

In this insightful article, Ben Carlson addresses a reader’s question about alternatives to entering the real estate market, particularly in the challenging context for first-time homebuyers. The current housing market is described as one of the toughest ever, with high prices and interest rates, yet surprisingly, a significant portion of recent buyers are first-timers. The article highlights the shift towards new home sales, now accounting for 15% of total sales, up from just 5% in 2010. This increase is attributed to factors like homebuilders’ incentives, including buying down mortgage rates for buyers. Interestingly, while housing prices are at all-time highs, the average price of new homes sold has decreased due to builders constructing smaller houses, thus catering to the demand for starter homes. The author, sharing personal experiences, weighs the pros and cons of building a new home versus buying an existing one. Key takeaways include the uniqueness of the housing market, the challenges of timing the market, and the potential advantages of building a new home to fit personal needs and preferences. If you are trying to navigate the current housing market, the full article offers a more detailed perspective, blending market analysis with practical advice.

Gen X’s Retirement Problem

They say that the best day to plant a tree was 20 years ago, the second best day is today. The same thing can be said for retirement planning. Unfortunately, for many Gen X’ers, who are less than 20 years away from retirement, there’s no plan in place for their golden years. This unsettling scenario is highlighted in a recent survey conducted by Schroders, a prominent London-based asset management firm. The survey paints a stark picture of the retirement readiness, or lack thereof, among Generation X. Holly Deaton of RIA Intel did a great summary of the survey, highlighting the main points in her article.

Generation X is struggling. According to a new survey by Schroders, the London-based asset manager with nearly $1 trillion in assets under management, almost half of Gen Xers have not done any retirement planning and the majority believe it is out of reach.

~Holly Deaton, RIA Intel

The survey shows that almost half of Gen Xers, aged 43 to 58, haven’t engaged in any retirement planning, with a majority feeling that a dream retirement is out of their reach. This group anticipates a significant retirement savings gap, expecting to save only about $661,013 against their estimated need of $1.1 million, which is a larger gap than that faced by Millennials and Baby Boomers. This issue is exacerbated by Gen X being the first generation to primarily rely on 401k plans instead of pensions. Moreover, Gen Xers tend to allocate a large portion of their retirement assets to cash, driven by fear of loss and a lack of investment knowledge. The survey underscores a crucial knowledge gap, highlighting the need for financial advisors to support investors, especially as those with advisors reportedly have nearly double the monthly income in retirement compared to those without. If you are a Gen X’er worried about your retirement situation, the full article provides detailed insights and comparisons across generations.